If the current draft of the Department of Labor’s proposed fiduciary regulations is adopted, employer-sponsored retirement plans at small companies could suffer. As more advisors shift from commission- to fee-based compensation to accommodate the new DOL rules, fewer employees will be able to pay for financial advice. And that could result in a decline in employee participation in small business defined contribution plans.

This is one of the themes of the MassMutual “Winning Combination Symposium,” held in New York City on January 12. The briefing detailed the findings of a new MassMutual study that explores what retirement plan sponsors value most from financial advisors. Conducted by Greenwald & Associates on behalf of MassMutual, the study also identifies the “winning combination of services” that plan advisors need to attract and retain new clients and secure referrals. 

“The good news is that plan sponsors overwhelmingly believe that the retirement plan advisor is valuable,” said Elaine Sarsynski, the symposium’s moderator and an executive vice president of MassMutual retirement and worksite insurance. “What’s more, the larger the plan, the more value that sponsors found in the relationship.” 

The report notes as much: Employers holding from $5 to $25 million in plan assets are more likely to say their advisor is very valuable (57 percent) than those with less than $1 million in plan assets (33 percent). Employers with $5-plus million in plan assets are the most satisfied with their advisors — 84 percent rating the advisors as excellent or very good — versus 65 percent of employers with less than $5 million in plan assets.

Particularly prized by plans sponsors is an advisor’s ability to do holistic benefits planning for rank-and-file employees (including life, health, disability income, critical illness and long-term care planning); as well as personalized planning for key executives. In respect to the latter, most financial professionals are living up to expectations. More than three-quarters of plan sponsors think advisors “do a good job.” 

“We see ability to do holistic planning — worksite retirement planning in conjunction with other areas of financial planning — as an industry trend,” said Sarsynski. “The holistic planning advisor is very important to the industry’s future.” 

So, too, are areas in need of improvement. On this score, the study flags education of employees in group meetings. Fewer than 6 in 10 plan sponsors (58 percent) rank advisors’ employee education as valuable.

Dissatisfaction among the other 42 percent might be reduced if advisors could fit more employee meetings into their schedules. The majority (65 percent) of plan sponsors with assets ranging from $25 to $75 million prefer that an advisor provide education or advice to employees at least semiannually. 

The 5 winning attributes of advisors

Among plans with less than $25 million in plan assets, employee education (most especially in respect to the value of contributing to a plan) ranks at the top of the “winning combination” attributes that plans sponsors value in an advisor. The other three top attributes are good service, helping with lowering plan costs and alerting the employer about their fiduciary responsibilities.

Among employers holding from $25 to $75 million in plan assets, the winning combination is different. In order of importance they include:

    1. Fiduciary education;

    2. Advice on plan design;

    3. Reducing plan costs; 

    4. Help with other benefits; and

    5. Advice on investment selections.

As regards the first item, fiduciary education, there’s much to discuss. One-third of organizations with an advisor say they’re not a fiduciary to their plan. Another 15 percent are uncertain about their fiduciary status. 

Only a third of plan sponsors who have an advisor say their advisor is the plan fiduciary. An additional 5 percent are unsure whether their advisor serves in a fiduciary capacity.

“These responses are disturbing, but according to advisors they’re not surprising,” said Sarsynski. “We have a lot of work to do as a community educating sponsors about their fiduciary responsibilities.”

Efforts underway are yielding results. Plan sponsors working with an advisor are more concerned about their fiduciary obligations. Concern also rises commensurately with the size of the employer: More than 8 in 10 organizations (83 percent) with $25 to $75 million in plan assets show concern. This compares with 63 percent and 54 percent of employers holding, respectively, $5-25 million and less than $5 million in plan assets.

Also contributing to the awareness campaign is the Department of Labor’s proposed fiduciary regulations for retirement plan advisors. The final version of the DOL rule to amend the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) is expected this year.

One downside of the DOL proposal: Most advisors polled by MassMutual say they don’t act as fiduciaries to their clients’ plans. And most don’t think they can do so absent “help from an outside source,” such as the plan provider. 

“Serving as a fiduciary would simply take too much of advisors’ time to be effective, [as they have] other responsibilities,” the report states. “If the Department of Labor moves toward stricter fiduciary standards, advisors may have to switch to a fee- rather than commission-based model. And advisors suggest this change will negatively impact their clients with smaller plans.”

A turn for the worse would likely be reflected in employee contributions to retirement plans. Indeed, the survey points to significant differences in engagement levels at employers with and without an advisor. Among plan sponsors served by a financial service professional:

    • 74 percent encourage employees to participate in their retirement plan (versus 65 percent of sponsors with no advisor);

    • 61 percent encourage employees to take advantage of other benefits outside of the retirement plan (versus 49 percent with no advisor);

    • 55 percent encourage employees to increase contributions to their retirement plan (versus 35 percent with no advisor); and

    • 48 percent promote employees’ financial well-being outside of the retirement plan (versus 33 percent with no advisor).

“The advice and guidance of a financial services professional is critical in this industry,” said Sarsynski. “Employees at organizations served by advisors feel more empowered to save and prepare for retirement, including overall financial wellness.

“We know also that disengaged employees often don’t help their companies achieve their business objectives,” she added. “So we really need to focus on improving financial wellness.

That heighted focus will lead to more effective and engaged employees,” she continued. And they’ll worry less about retiring on their terms or not having adequate financial protection for their families. 

Turning to best practices for advisors, Sarsynski observed that financial service professionals who can succinctly articulate their value proposition — whether as a short elevator speech or a lengthy 45-minute presentation — are more successful at retaining and attracting customers. 

“What we found, however, is that many advisors couldn’t articulate their value proposition as well as they need to,” she said. “As an advisor, you need to do some soul-searching to identify how you differentiate yourself from competitors so that you can continue to provide value-add. Otherwise, you’ll just become a commodity.”

See the slides beginning on the next page for additional highlights from the MassMutual survey.

See also:

3 outstanding questions about the DOL’s proposed fiduciary rule

DOL’s fiduciary regs may be especially bad for insurance BDs

Retirement plans in 2019: A sea change coming

Joint survey flags inconsistencies with term “fiduciary”

As indicated here, only half of plan sponsors believe they are a fiduciary to their retirement plan. About two in ten sponsors who work with an advisor are not sure whether they or their advisor is a fiduciary to their plan. 

Two-thirds (67 percent) of employers with assets ranging from $25 to $75 million say their advisor is a fiduciary to their plan. This compares with 50 percent and 32 percent of employers managing, respectively $5-25 million and less than $5 million in plan assets (click on the images to enlarge).

As this chart shows, advisors excel more in certain areas than others. At least one-third of plan sponsors rate their advisors as “excellent” in respect to customer service, fiduciary education and investment selection.

Services most in need of improvement include “advising on other employee benefits” and providing “information for a financially secure retirement.”

With or without an advisor, the vast majority of plan sponsors want help explaining retirement plan benefits and options to key employees.

Also especially valued by plan sponsors are (1) educating employees on the importance of contributing to a retirement plan; and (2) personalized advice to help employees determine whether they’re on track to meet retirement goals.

As this chart shows, only half of plan sponsors without an advisor rank fiduciary education as “extremely” or “very” valuable. This compares to about two-thirds or more of plan sponsors who identify reducing plan costs, customer service, solving problems and information relative to financial security in retirement as top-valued topics.

Intriguingly, plan sponsors’ priorities are reversed among those with a financial services professional. Thus, less than 1 in 5 plan sponsors (16 percent) cite information about reducing plan costs as a reason for working with an advisor.

This compares with more than a third of employers who want: (1) help in meeting their fiduciary responsibilities (34 percent); and (2) advice on plan design and features (36 percent).

 

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